US banks’ profits are best in six years

But some say economy is not the main reason

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Banks have sold less-profitable units, shed bad loans, and cut jobs, helping to improve their results. And for the first time since 2009, better earnings were due to higher revenue rather than to setting aside less money to cover losses.

By Marcy Gordon and Christina RexrodeAssociated Press
December 05, 2012

WASHINGTON — US banks are enjoying their best profits in six years and are lending a bit more freely. The gradual improvement suggests the industry will sustain its healing from the worst financial crisis in decades and help strengthen the economy.

The industry earned $37.6 billion from July through September, a 6.6 percent increase from a year earlier.

For the first time since 2009, the stronger earnings were due mainly to higher revenue rather than to less money set aside to cover losses, data issued Tuesday by the Federal Deposit Insurance Corp. showed. Loans to consumers rose nearly 1 percent from the July-September 2011 period.

‘‘We are seeing the classic recovery from a recession,’’ said Bert Ely, a banking industry consultant in Alexandria, Va. ‘‘All of the arrows are pointing in the right direction.’’

Some of the largest banks caution, though, that earnings are up mostly because they have sold less-profitable businesses, shed bad loans, and trimmed jobs — not because of a more vibrant economy.

Some banks are testing higher fees on consumer loans and services to offset new rules mandated after the crisis that have crimped revenue.

Consumer lending grew in most categories in the third quarter. That shows banks are becoming less cautious, which could help the economy. More lending leads to more consumer spending, which drives roughly 70 percent of US economic activity. The banks’ mortgage loans rose 0.8 percent from the previous quarter; auto loans,2.4 percent.

Ely noted that many businesses and consumers are still reluctant to borrow, and banks are cautious about lending. That’s creating a slow transition for banks from stemming losses to boosting profits.

The biggest banks say that customers have held off on borrowing in part because of slower global growth and worries about the so-called fiscal cliff — automatic tax increases and spending cuts that kick in next month unless President Obama and Congress reach a deal to avert them.

Since the Great Recession ended 3½ years ago, the economy has been growing at a subpar annual rate of roughly 2 percent. Most economists say it needs to grow twice as fast to rapidly lower unemployment, now at 7.9 percent.

This week, Wells Fargo & Co. chief executive John Stumpf said he expects the economy to remain tepid until customers and businesses better understand Washington’s plans. ‘‘I don’t see the impetus to all of a sudden go from a 2 percent growth to a 5 percent growth,’’ he said.

The Federal Reserve’s policies have helped banks borrow cheaply for the past four years. The Fed has kept short-term interest rates near zero to try to spur the economy. And the Fed’s bond purchases have led to lower long-term interest rates, which have helped drive a modest housing recovery.

But banks complain that low interest rates have also reduced the money they can make on loans.